PAPER Department of Treasury 30 August 2018 Outline Update on - - PowerPoint PPT Presentation

2019 BUDGET STRATEGY PAPER

30 August 2018

Department of Treasury

Outline

Update on State of the Economy Fiscal Outlook 2019 to 2022

Revenue Expenditure Financing

Government Reforms Economic and Fiscal Risks

Global Economy continues to Strengthen

• Global economy grew at

3.8% in 2017 and to continue strengthen to 3.9% in 2018 and 2019. 3.4 3.5 3.6 3.7 3.8 3.9 4 2017 2018 2019 2020 2021 2022 World Total Real GDP Growth (2017 October WEO) World Total Real GDP Growth (2018 April WEO)

Per cent

 Global growth strengthening to support prices of PNG’s exports.  Leads to increase farmers’ income, company profits, increase tax collections and supports PNG’s economic growth.

O’Neill-Abel Government Plans

• 1. Alotau Accord 2 Priorities

Economic Growth Infrastructure Law and Order Free and Quality Education Free and Quality Health

• 2. The 25 Point (100 Day) Plan

Maintain Fiscal Discipline and boost foreign exchange Grow our revenues Strengthen our economic base Improve our governance record Act strategically

Domestic Economy

Growth Picking up in 2019

• Domestic economy to grow by 2.3% in 2019,

up from 1.0% in 2018,

• Growth to be driven by return to normal

gas production, early works associated with the Wafi-Golpu and related spin-off benefits in non-mining sectors.

• Growth projected to average around 5%

from 2020-2024 driven by the construction phase

• f

the Wafi-Golpu project and onset of LNG Train 3 in 2024.

• Spin-Off activities from the Wafi-Golpu

construction phase to boost non-mining sector over the medium term.

• Volatility in mining growth reflecting varying and

at times uncertain mine plans of mature mines.

• 4.0
• 2.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 2017 2018 2019 2020 2021 2022 2023 Total Real GDP (PNG) Non-Mining GDP Mining GDP (RHS) Per cent

2018-2022 Medium Term Fiscal Strategy (MTFS)

• The 2018 Budget guided by the Alotau 2 Accord and 25 Point Plan.
• The new Medium Term Fiscal Strategy (MTFS 2018-2022),a five year fiscal

framework. The MTFS consists of a MTRS and MTDS.

• Revenue Strategy-Lift revenue as a percentage of GDP by improving tax

administration, tax policy and tax law reforms.

• Expenditure Strategy –Reduce operational and increase capital Budget as a share
• f GDP and stick to the Budget.
• Debt Management Strategy-Looking at reducing our deficit and shift from

expensive short-term debt to cheaper long term external debt.

Fiscal Trend based on MTFS 2018- 2022

25 30 35 40 2016 2017 2018 2019 2020 2021 2022

Debt as % of GDP

• 4.6%
• 2.4% -2.5%
• 2.2%
• 1.8%
• 1.4%
• 1.2%
• 5.0%
• 4.5%
• 4.0%
• 3.5%
• 3.0%
• 2.5%
• 2.0%
• 1.5%
• 1.0%
• 0.5%

0.0%

• 3,500
• 3,000
• 2,500
• 2,000
• 1,500
• 1,000
• 500

2016 2017 2018 2019 2020 2021 2022 Net Lending (+)/ Borrowing (-) (LHS) Net Lending (+) / Net Borrowing (-) as % of GDP (RHS)

• Budget Deficit remains stable in 2018
• MTFS on Track!
• Our Debt is well within sustainable

limits.

• Dinau bilong yumi e stap long gutpla

mark !

Medium Term Revenue Strategy (MTRS) & 25- Point Plan

7,500 8,000 8,500 9,000 9,500 10,000 2014 2015 2016 2017 2018

TAX REVENUES (K MILLIONS)

Revenue Strategy-Lift revenue as a percentage of GDP by improving tax administration, tax policy and tax law reforms.

• Stop the declining trend in

revenues;

• Institute the MTRS strategies;
• Enforce compliance and

strengthen collections; and

• Ongoing monitoring.

MAJOR TAXES (K MILLIONS)

2019 BUDGET STRATEGY

2018

2019

2020 2021 2022 Total Revenue and Grants % of GDP 12,731 15.9%

13,058.3 15.0%

13,936.5 15.0% 14,981 15.0% 16,253.9 14.9% Total Expenditure and Grants % of GDP 14,718 18.4%

14,955.8 18.0%

15,612.2 16.8% 16,389.8 16.4% 17,515.1 16.1% Net Lending (+)/ Net borrowing (-) % of GDP

• 1,987
• 2.5%
• 1,897.5
• 2.2%
• 1,676
• 1.8%
• 1,408.8
• 1.4%
• 1,261.2
• 1.2%

Non-resource Primary Balance % of GDP

• 592
• 1.0%
• 442
• 0.7%
• 193
• 0.3%
• 10

0.0% 98 0.1% Gross Government Debt % of GDP 25,808 32.2%

27,443 31.6%

29,118.8 31.4% 30,527.3 30.5% 31,788.7 29.2%

Revenue Outlook

2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 2017 2018 2019 2020 2021 2022 2023 Tax Revenue Donor Grants Other Revenue Total Revenue Kina Million

• Revenue profile in 2019
• nwards

reflective

• f

MTRS.

• Revenue increasing from

K12.9 in 2018 to K13 billion in 2019.

• Indicative

Total Revenue and Grants for the 2019 Budget is K13,058.3 million higher by K114.5 million from 2018 MYEFO projections and K327.6 million higher than the 2018 Budget projection.

Major Revenue Heads Projections

Major Tax revenues to increase gradually over the medium-term reflecting:

• anticipated increase

activities relating to the construction of a mining and a petroleum project.

• supported by relatively

increased MPT receipts due to better forecasts of mineral and petroleum prices

2000 4000 6000 8000 10000 12000 14000 16000 2017 2018 2019 2020 2021 2022 2023 Personal Income Tax Company Tax GST2 Local Excise Import Excise Export Tax Import Duty MPT

Kina Million

Expenditure Outlook

• The 2019 expenditure to

be guided by the 2018 Expenditure Strategy as

• utlined in the MTFS

and the MTDP III.

• Indicative total

expenditure and Net Lending for 2019 is K14.9 billion, K238.5 million higher than the 2018 MYEFO projection

2018 (MYEFO) 2019 2020 2021 2022 Total expenditure & Net Lending 14,717.8 14,955.8 15,612.2 16,389.8 17,515.1 % of GDP 18.4% 17.3% 17.0% 16.5% 16.2% Expense 10,044.0 10,029.6 10,248.7 10,469.4 11,266.5 % of GDP 12.5% 11.7% 11.1% 10.9% 10.5% Compensation of employees 4,163.0 4,266.2 4,397.2 4,532.1 4,671.1 Use of goods and services 3,004.5 2,649.9 2,641.4 2,695.2 2,965 Interest 1,864.7 2,009.5 2,105.9 2,136.6 2,323.6 Grant 499.9 572.3 572.3 572.3 572.3 GST Transfers to Provinces 511.9 531.7 531.9 533.2 534.5 Capital Expenditure 4,673.88 4,926.2 5,363.5 5,820.4 6,448.5 % of GDP 5.8% 5.7% 5.8% 5.9% 6.0% GoPNG PIP 1,881.0 1,989 2,091 2,125 2,323 Service Improvement Programs 1,174.4 1,177.2 1,177.2 1,177.2 1,177.2 Loans Drawdowns 593.9 816.9 1,163.3 1,585.9 2,016.2 Project Support Grants 1,024.6 943.1 932.1 932.1 932.1

Rebalance Expenditure Path over the medium to Stimulate broad based and sustainable economic growth…

Focus on improving Expenditure Quality, Reduce Leakages, Control Public Sector Wage Bill,

• Operational Expenditure to support

Capital Investment

• Tuition Fee Free, Healthcare

Subsidy, Infrastructure Maintenance, etc

• Capital Investment
• High Impact Infrastructure (Sepik

Plain, Highland Highway, Submarine Cable, etc)

• Service Improvement Programs

(Districts/Prov)

• Health, Education, Transport &

Energy Infrastructures

• Loan Projects Counterpart Funding

Expenditure Outlook

• Tuition Fee Free (TFF) Education
• Free Primary Health Care
• Services Improvement Program (PSIP

, DSIP & LLGSIP)

• District Infrastructure Fund
• MTDP key enablers - health, education, Law and Order

and infrastructure

• Debt Servicing
• Agriculture and SMEs
• Promote tourism

Key Expenditure Priorities

Debt Financing Outlook

• Debt to GDP ratio is

31.2%, slightly better than the 2018 Budget of 32.2%, within the prescribed debt to GDP band in the FRA.

• Proceeds from external

financing will ease the foreign exchange imbalance.

• ADB Budget Support
• World Bank Budget

Support being finalised

• Sovereign Bond is in

advanced stages

Debt Instruments 2018 (MYEFO) 2019 2020 2021 2022 Domestic Net Financing 373.8 200.6 454.7 816.2 862.1 Securities 373.8 200.6 454.7 816.2 862.1 Treasury Bills 30.2

• 108

156 87.7

• 61.3

Inscribed Stock 343.6 308.6 298.7 728.5 923.4 External Net Financing 1,613.4 1,696.9 1,221.1 592.3 399.3 Sovereign Bond 640 640 320

• 640

Loans 973.4 1,056.9 901.1 592.3 1,039.3 Concessional Loans 337.4 480.6 808.3 1,123.40 1,389.7 Commercial 39.8

• 17.9
• 513.9
• 513.9
• 337.9

Extraordinary 596.2 594.2 606.7

• 17.1
• 12.4

Total Net Financing 1,987.2 1,897.5 1,675.8 1,408.5 1,261.4

Government Reform Initiatives

• Medium Term Revenue Strategy
• Payroll Reforms
• Strict Implementation of PFMA
• Budget Reforms
• Pursue Resource and Non-Resource Projects
• Complementary Structural Policies and reforms
• Fiscal Discipline

Risks to Economic and Fiscal Outlook

Macroeconomic Risks

• Uncertainty in global trade between the USA and

China could impact commodity prices and PNG’s key exports in agriculture fishery and forestry and the mining sector;

• Continued imbalance in the foreign currency market;
• Natural phenomena such as earthquake, landslips,

L/Owner issues can affect Gov’t revenues; and

• Slower

than expected implementation

• f

large extractive investment projects will impact overall economic growth.

Fiscal Risks

• Unexpected delay in securing external financing: e.g,

the WB Support;

• Dividends and tax compliance revenue projections

not meeting 2018 projections; and

• Complacent fiscal management including failure to

control PE, which will add further pressure on the fiscal position and undermine the 2019 Budget fiscal parameters.

Debt Related Risks

• Exposure through debt guarantees and

contingent liabilities;

• Heavy reliance on domestic borrowing results in

high interest costs; and

• Careful fiscal management required to ensure

debt levels remain sustainable.

END OF PRESENTATION THANK YOU